Speaking experientially, mergers take at least a couple of years to bed down.  So I would not seek synergies in either the target's stock market price run-up prior to the merger, nor in the accounts after year one.  The stock market price run-up might be a good measure of market participants' expectations of future synergies.  Actual synergies might be detectable in the improvements (or otherwise) to return on capital or return on assets over the ensuing 3-5 years compared to what it might otherwise have been had the merger not occured.  If the merger involved changes to the capital structure, then return on equity might be more suitable. 

http://people.stern.nyu.edu/adamodar/pdfiles/papers/synergy.pdf

Please check the link above for Prof. Damodaran's take on this issue. He looks at it from a valuation perspective, which would complement the accounting approaches suggested above. If you are looking at measuring actual synergies, I would second Chris Kelly's suggestion to look at the impact of a merger over a 3-5 year period post-merger as synergies take a while to realize, if at all. 

Thanks to all of you for these interesting  and valuable insights concerning symergies' valuation. Best regards.

Patrick.

You can consult the paper in the link as a first approach.

http://www.tandfonline.com/doi/abs/10.3846/16111699.2013.804875

I think that the time-frame depends, to a great extent, on the context. The realisation of synergies in some industries might take significantly longer than in other industries. For instance, the product development process in the pharmaceutical and car industry will be significantly longer than in other industries like mobile phones, etc. Therefore, I would advise you to take industry into account and at least control for it.

Three types of synergy can be found in literature: Operational, financial and collusive.See 'Types of Synergy and Economic Value: / The Impact of Acquisitions on Merging and Rival Firms" by CHATTERJEE for more details. It agree 7 year event window will give good results.

In general, I would use CAR and BHAR. For accounting indicators, I would focus on the sector of reference. As you know, some indicators are specific to the sector (eg: cost income ratio in the banking industry). However, a good article is, in my opinion, Healy, Palepu, and Ruback (1992). 

Measuring synergy would be  a good starting point:

Cicon, J., Clarke, J., Ferris, S. P., & Jayaraman, N. (2014). Managerial Expectations of Synergy and the Performance of Acquiring Firms: The Contribution of Soft Data. Journal of Behavioral Finance, 15(3), 161-175.

Leydesdorff, L., Park, H. W., & Lengyel, B. (2014). A routine for measuring synergy in university–industry–government relations: Mutual information as a Triple-Helix and Quadruple-Helix indicator. Scientometrics, 99(1), 27-35.

Thanks you for all your contributions .It is helpful for me. What do you think about this following paper?

 How Do Mergers Create Value? A Comparison of Taxes, Market Power, and

Efficiency Improvements as Explanations for Synergies

Erik Devos; Palani-RajanK adapakkam; Srinivasan Krishnamurthy

Review of Financial Studies  March 2009, p1179 -1211

Measurement of Synergy from merger is  complex issue and may take a few years to realize.  However, change in share prices may reflect the improved valuation (Jnasen & Femma, in FE) .  Statistics suggest friendly mergers do not improve even valuation so one can't think of any synergy!!   

To answer to Emanuel, I think that some synergies are easier to achieve than others. For example reducing costs via pooled purchasing or  the closing  of some plants may be often realized. But increasing sales using the the distribution channel of the other firm may be more difficult to put in place. Here i make a difference between "cost synergies" and "revenues synergies".

Best regards

One can study synergy affect in multiple ways depending upon its objectives. For instance synergy can be to increase efficiencies. Such efficiencies can be checked through efficiency measures such as return on assets as difference in pre post merger time period. Despite this it also increase the market share. It decrease the market competition. So, a part of market performances synergy can also provide these benefits. 

Indeed Patrick, that's also the case.

Thanks you for all your valuable answers

I am still wondering how long synergies are supposed to  last? Could we say that the additional cash flows they bring to the firm are everlasting or not? If not how many years should we take them into account? it may depend of the industry, of the innovation rate prevailing in this sector, or of the competitive pressure....what are your feelings about that kind of topic? 

I like your 'cost synergies' and 'revenue synergies' distinction.  It is likely further decomposition is also possible such as 'people synergies', 'property synergies', 'customer synergies'. 

I would have thought in most cases synergies are intended to be everlasting, although I cannot provide a reference for that other than considering the historic synergies achieved by companies such as Reckitt Benckiser (household products), GlaxoSmithKline (pharmaceuticals), Pricwaterhousecoopers (professional services), BP/Amoco (oil).  That might also be contrastable to companies that have avoided merger synergies, at least in recent decades, such as Goldman Sachs, presumably due to unwillingness to dilute their powerful internal business culture and intellectual property. 

Hi!

Some are also speaking about income tax economies, or financial  synergies.  Firms may undertake mergers due to tax reasons (Hayn, 1989), with the merger gains resulting from a transfer of wealth from the government to the merging firms. Devos and al (2009) estimate that tax savings contribute only 1.64% in additional value, while operating synergies account for the remaining 8.38% for a total of 10.03%. Do you know some others recent papers, or cases about that particular subject?

Hi,

To try to go further, I think that a good integration of the target company in the businesses of the acquiring firm is necessary to obtain a high level of synergies. This nice integration is not an easy task to perform. You must go quickly and be cautious not to bother people, and you must have an accurate idea of where you want to go in a near future (Strategy,  business plans,....). Do you papers on merger's integration of the acquired firm?

regards

Hi,

I just find a paper on private information held by directors about target firms that may be of interest for those of you interested by acquisitoion benefits:

P L Rousseau, C Stroup, "Director histories and the pattern of acquisitions", Journal of Financial and Quantitative Analysis, August 2015, Vol 50, p 671 -698.

Best regards